Can You Ditch Your Checking Account?

By Kelli B. Grant

There’s not much difference between a prepaid card and a debit card — save prepaid cards’ reputation as a low-rent option for credit slackers. But now that a new card from American Express wipes out the fees that often plague both categories, it raises the question: Could a prepaid card replace your checking account?

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Like its competitors, the American Express prepaid card works anywhere a credit card does, limiting spending to the cash in your account. But it skips the fees most others charge, including $10 to $15 to set up the card and an ongoing $5 to $10 per month to use it. It also offers a few perks more often found on credit cards, like roadside assistance and theft protection on purchases. Even so, its usefulness may be limited depending on how you bank.

If you’re already using a prepaid card, the new offering is a win, says Odysseas Papadimitriou, the chief executive of CardHub, a comparison site for credit and prepaid cards. The next-best cards in the category, Green Dot Prepaid Visa and Capital One Prepaid, charge $5.95 and $4.95 per month, respectively. (Capital One waives that fee if you load more than $500 per month.) Going with the American Express card would save up to $72 per year.

Analysts expect banks to try to entice more checking account users to try prepaid cards as a way to generate revenue to offset the recent 12-cent cap on fees issuers can charge a store to accept debit card purchases. Stores process prepaid cards like credit cards, which generate a more profitable 1% to 2% fee on the purchase total. Consumers, for their part, could see fewer fees with prepaid. A study from consulting company Bretton Woods found that prepaid cardholders spend roughly $73.35 per year on fees, versus $218 for a checking account.

American Express says it’s pitching the card as both a banking alternative and a complement to a checking account. But the card isn’t a perfect option for anyone looking to avoid rising checking account fees, Papadimitriou says. Notably, the card does not let cardholder get a paycheck direct-deposited in an account, offers more limited bill-pay options, and has a maximum account balance of $2,500. “With the limitations American Express put in place, it’s a product that doesn’t meet any need,” Papadimitriou says. “Otherwise, I’d call it a checking account killer.” There are still a few fees to, too, such as $5 to third-party company Green Dot to add cash to the card at a major retailer (adding money by phone or online transfer is free), and $2 for each ATM withdrawal after the first one each month.

An American Express spokeswoman says direct deposit will be made available before the end of the year, and that the balance limit may also be increased. “We haven’t received any consumer feedback that that amount is not adequate,” she says. Consumers can pay bills to any company that accepts American Express.

Comments (5 of 7)

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7:39 pm August 24, 2012

Chris Britt wrote:

Just so you know, the article is somewhat incorrect or using old information. Amex will allow your paycheck direct deposited. They have revised their balance terms as well. During the trial period when they launched the card, one could only load $2500 monthly. Now you can have a $2500 balance at most at a given time but can reload as often as you want. They also permit a few free ATM withdrawals per month… It’s really not a bad option at all.

If you get their “Target” branded Amex Prepaid card, you pay only $3 for reloads at Target stores as opposed to $4 via moneypack reloads.

Also through the end of August or September (not sure about September) Amex prepaid is REBATING moneypack reload fees… call them to findout. I got mine waived!

Best,

Chris

8:25 pm March 4, 2012

Arif wrote:

travelmaster / July 9, 2011yes you can but you would have to rgteseir your name and address on the prepaid card issuer site else the merchant might reject the card you see gift card don’t come with billing information so when the merchant CVS tries to verfry the card it will be declined because there is no matching address with the card company read the the following article it help explain things Using Visa or American Express Gift Cards to Shop Onlinequestion.jpgOne of the most asked gift card questions, particularly on Yahoo Answers is whether you can use a Visa or any other bank issued gift card (American Express, Discover, or MasterCard) to shop online. The answer is yes.However, there are additional steps you have to take to prevent your card from being rejected by the merchant. The problem with using Visa (or any other bank issued) gift card online is that there is no verifiable name and address associated with the card. When buying things online, most merchants want your name and billing address to match the name and address you have on file with your card (credit, debit, or bank gift card) issuer.Therefore, before you use your Visa or other bank issued gift card, call the merchant/financial institution that issued the card or go to their website and add your name and address to the card. This will ensure that when you use the card online, the name and address you provide to the merchant for billing will match the name and address on file for the card. Once you have rgteseired your card, you can use it online just like you would use a regular credit card.If your information (name and address) has changed since you rgteseired your Visa gift card, call the card issuer or go online and update your information before you use the card online.Reply

8:56 am July 25, 2011

Walt wrote:

Not all merchants will take Amex due to exorbitant fees Amex charges them. Home Depot is one I know of personnaly.

6:38 pm July 23, 2011

Kevin wrote:

I’ll keep my account at Huntington Bancshares.

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